Dean Baker
Intereconomics, Volume 52, May/June 2017, Number 3

June 2, 2017 (Jobs Byte)

Dean Baker
Jacobin, May 31, 2017

While rising capital share and greater concentration of wealth explain some of the story of economic inequality, the largest part of the story is the growth in wage inequality over the last several decades. Available data from the Social Security Administration unfortunately doesn’t go past 1990, overlooking considerable upward distribution of wages beginning in 1980. However, wage distributions from 1990 to 2015 show a clear, and unequal, upward trend.

The share of wages earned by the top 0.1 percent of wage earners increased 36 percent in that time period, from 3.5 percent of all wages earned to 4.8 percent. These earners are largely Wall Street bankers and top executives from private companies, as well as hospitals, universities, and other non-profits. Although the data from such a small pool of workers is erratic, they show soaring gains over ordinary workers that coincide with stock market peaks. Wages at this income level are likely paid in part in stock options, so that connection is unsurprising, but the magnitude of wage increases for this group compared to the others supports the argument that wages are part of the inequality picture.

Dean Baker
Truthout, May 29, 2017

Andrew Biggs, an economist at the American Enterprise Institute, had a piece in The Hill telling readers that the private 401(k) system is doing just great, while public pension plans and Social Security are in big trouble. The story is we need not worry about most people’s retirement security, we have to worry about the cost of the public retirement system.

There are a few parts of Biggs’ story that don’t quite hold up. Biggs tells us:

“A 2016 Census Bureau study found that — thanks to a 75 percent increase in benefits from private retirement plans — incomes for the median new retiree rose by 58 percent above inflation from 1989 to 2007. Another new study, from economists at the IRS and the Investment Company Institute, finds that the median retiree has an income equal to 103 percent of their income just prior to retirement, far exceeding the 70 percent “replacement rate” that most financial advisors recommend.”

The Census Bureau study actually was just looking at the retirement income of women, not all new retirees. This matters because the median women retiring in 2007 had far more years in the workforce than the median woman hitting retirement age in 1989. Also, women actually did get some increase in their pay over this period, in contrast to the stagnation in pay for men earning near the median. So it matters hugely that this study was only examining women, not all retirees.

It is also important to note that the use of the term “income” is somewhat misleading in this paragraph. It is including as income withdrawals from IRAs and 401(k)s. This is somewhat problematic since this is drawing down past savings, it does not amount to an ongoing flow. The studies cited by Biggs don’t indicate if the pace of drawdown in the years immediately after retirement can be sustained for a retirement that could last 25 years or more. (Biggs is correct to point out that the money taken out of 401(k)s is largely excluded from other data measuring income. While it is wrong to ignore this money, it is not right to treat it as income in the same way that a traditional defined benefit pension is income.)

Dean Baker
The Hankyoreh, May 28, 2017